BlackRock's managing director and head of China equities reportedly has predicted that the full inclusion of Chinese shares in MSCI indices could entice investors to pour $400 billion into them.
China H and A shares could make up more than 40 percent of MSCI EM Index after full inclusion, BlackRock said.
MSCI's decision to add China-listed stocks to a key benchmark will give investors a stake in China's growth, but the cost of such access will be exposure to persistently weak corporate governance in the country, investor activists and analysts told Reuters.
The U.S. index provider recently said it would add 222 China-listed large cap stocks to its Emerging Markets Index, tracked by around $1.6 trillion in assets.
BlackRock’s managing director and head of China equities, Helen Zhu, made the comment to CNBC.com in response to the muted reaction from market watchers after MSCI decided last week to add 222 China A shares into its emerging markets index.
Some even said that the move is not a "game changer on any front."
"A lot of these type of changes, you do have to implement them early on to provide the backdrop for the gradual changes and impact to come through. In terms of the MSCI Asia inclusion, it is only indeed a first step, it's a relatively small step because the inclusion factor is only 5 percent at the moment," Zhu told CNBC.
"But over a medium and longer term perspective, this is very much just the first step in a very gradual and inevitable process of a full inclusion of China in the indices. When that full inclusion happens, China H plus A added together will be potentially over 40 percent of MSCI EM (emerging market), at which point we're talking about maybe $400 billion plus of potential inflows."
Meanwhile, Reuters reported that the MSCI decision was hailed as a major endorsement of China's reform agenda, but it also comes at a time of renewed concerns following a flurry of corporate scandals and a surge in public campaigns by activist investors alleging problems with fraud, financial engineering and market manipulation.
Given that the Beijing government is also stepping up its interference in corporate affairs by insisting that Communist Party committees be established at state firms, some governance activists are questioning MSCI's decision.
"Is this the right time for global investors to have to be exposed to China? It's hard to argue that the level of investor protection, regulatory consistency, and overall corporate governance in China is high enough," said Jamie Allen, secretary general of the Asian Corporate Governance Association (ACGA).
China ranks ninth out of 11 Asian economies for corporate governance, according to the ACGA. Its overall scores have declined since 2014.
(Newsmax wires services contributed to this report).
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